T.S. Sivagnanam, J.
1. Heard Mr. S. Udayakumar, learned Senior Standing Counsel for the Customs and Mr. B. Sathish Sundar, learned Counsel for the second respondent.
2. The above appeal has been filed against the order passed by the CESSTAT in final order No. 107/03 dated 16.12.2003. At the time of admitting this appeal, the following questions of law were framed for consideration:
1. Whether in the circumstances of the case, the violation of conditions of the Advance Licence r/w customs Notification No. 48/99 is not an offence committed under Section 11(o) of the Customs Act, 1962 and whether goods are not liable for confiscation.
2. Whether the second respondent is not lilable to pay penalty and under Section 112(a) of the Customs Act, 1962.
3. The relevant facts of the case is as hereunder:
The second respondent had imported four consignment of Copper Scrap totally weighing 86.963 Mt.Tonns in four containers and filed four Bill of Entries on 20.11.2001. They availed the benefit of the Notification No. 48/99 - CUS dated 29.4.1999, which permitted import of goods free from Duty of Customs. The said notification pertains to an exemption in respect of import against Annual Advance Licence with Actual User Condition.
4. The allegation against the second respondent was that they were not entitled to the benefit of notification No. 48/99 and therefore were liable for payment of duty for the goods imported. A show cause notice dated 6.3.2003 was issued by the Deputy Director, Directorate of Revenue in Intelligence, Chennai, (hereinafter referred as DRI), calling upon the second respondent to show cause within thirty days of receipt of the notice as to why the benefit of notification No. 48/99 - Customs DATED 29.4.1999 should not be denied for 86.963 metric tons of copper scrap valued at Rs. 48,73,614/- imported by the second respondent for under the annual Advance Licence dated 10.7.2001, in view of the fact that the licence was obtained by giving a false information that they have a factory for manufacture of the export product, which was according to the Department a non existing factory and hence they are not eligible to obtain the Annual Aadvance licence in question.
5. The second respondent was further called upon to show cause as to why the duty amounting to Rs. 30,63,748/- on the goods seized weighing 86.963 metric tonns should not be demanded under Section 28(1) of the Customs Act (hereinafter referred as the Act) and as to why the goods under seizure should not be confiscated under Section 111(o) of the Act and penalty not be imposed under Section 112(a) of the Act.
6. The second respondent submitted their reply dated 10.4.2003, inter alia contending that they have been holding a valid DEEC licence and the Department has delayed the assessment and clearance as the investigation into earlier imports done by the second respondent was in progress. It was stated that the allegation regarding utilisation of the past clearances are not required to be answered in respect of the present show cause notice.
7. It was further stated in the reply that the goods are not liable for confiscation under Section 111(o) of the Act, as there is no mis-declaration in the bill of entry or other import documents and prayed for dropping the confiscation proceedings. It was the case of the respondent that if the goods are not liable for confiscation, then the question of payment of penalty does not arise. The second respondent requested the Appraising Group to assess the goods on merit and facilitate the clearance after the discharge of the duty assessed.
8. The case was adjudicated by the Appellant and an order- in- original dated 5.6.2003 came to be passed, holding that the name and address of the factory given by the second respondent was found to be non existent and the building was never used for any manufacture of copper items and that without a factory and without an ancillary, the importer cannot fulfill the conditions of the said Advance Licence. The Adjudicating Authority also made a note about past consignment which was imported about 1 years prior to the present importation and that no evidence has been produced by the Importer to prove that they have made any export of the items manufactured out of the imported copper scrap. The authority ultimately held that the impossibility of performance of the licence condition renders the licence null and void and renders the declaration in the bill of entry as mis-declaration and ordered for confiscation of the goods under Section 110(o) of the Act and liable for penalty under Section 112(a) of the Act. The Adjudicating Authority had given an option to the Importer to redeem the goods on payment of fine of Rs. 20 lakhs, demanded a duty of Rs. 30,63,748/- under Section 28(1) of the Act and impose a penalty of Rs. 10 lakhs on the second respondent under Section 112(a) of the Act.
9. The second respondent filed an appeal before the CESSTAT against the order of the adjudicating authority ordering confiscation and imposing final penalty. The Tribunal after going through the factual and legal submissions made on behalf of the importer and the Department, came to a conclusion that the entire proceedings was premature because the licence was issued on 10.7.2001 and the second respondent had 18 months time for fulfillment of the export obligation, but the DRI seized the goods even as early as on 14.3.2002 along with the licence. The Tribunal therefore came to the conclusion that the second respondent herein could not exercise his right over the goods and fulfill the export obligation.
10. The Tribunal also held that the goods are not liable for confiscation under Section 111(o) of the Act and the Importer is not liable for penalty under Section 112(a) of the Act. The Tribunal reversed the finding rendered by the Adjudicating Authority by stating that the contract is never void and is only voidable and there is no question of nullity. The Tribunal placed reliance on the Judgment of the Hon'ble Supreme Court in Union of India v. Sampat Raj Dugar reported in : 1992(58)ELT163(SC) in support of its conclusion.
11. The other finding rendered by the Tribunal was that it is not for the Customs authority to interpret the Licence Policy and they are to enforce the same once a valid licence is produced and the function is wholly within their realm of the licencing authority. While considering the alternate plea raised by the Importer at the time of hearing, for allowing the goods to be cleared on merit rate as the item was freely importable under Open General Licence (OGL) and falling under Chapter Heading 74.01. The Tribunal took note of an order passed by the Commission of Customs (Imports) in order in Original No. 150/02 dated 21.11.2002 in the matter of M/s Aglow Exports, wherein the said importer was allowed to clear the goods on payment of duty on merit rate. The Tribunal observed that the case of M/s Aglow Exports was worse than the present case as in that case, the licence was cancelled by the authorities who issued the licence. Ultimately the Tribunal directed the second respondent to clear the imported goods on merit rate by paying the appropriate duty. The above Appeal has been preferred by the Department against the order passed by the Tribunal.
12. Mr. S. Udayakumar, learned Senior Standing Counsel for the Customs would submit that the second respondent having violated the conditions of the Advance Licence, is not entitled to claim exemption of duty as per provisions of the Customs Notification No. 48/99. The learned Senior Standing Counsel took us through the various conditions contained in the Notification No. 48/99 and stated that the exemption has been granted based on stringent conditions laid down under the notification and the export obligation has to be discharged within the period specified or within such extended period. It was further submitted that the second respondent has declared themselves as manufacturer exporter and the investigation conducted by the Department reveals that there is no manufacturing unit and therefore, they are not entitled to claim the exemption under notification 48/99. That the terms and conditions of an exemption notification are subject to strict interpretation.
13. It was the further contented that the liability to manufacture and export goods from the materials imported is both statutory and contractual, the statutory obligation is enforced by the provisions of the various Sections under the Customs Act, the Rules framed thereunder and the notification issued and the contractual obligations are not really enforced in view of the statutory powers. Thus it was contended that the licence is null and void, the declaration made by the second respondent is false and therefore the description in the bill of entry is a mis-declaration rendering the goods imported liable for confiscation under Section 111(o) of the Act and consequently, the second respondent is also liable for penalty under Section 112(a) of the Act.
14. Mr. B. Satish Sundar, learned Counsel for the second respondent would on the other hand submit that it is an undisputed fact that the second respondent was issued with an advance licence facilitating import of coper scrap valued at Rupees five crores free of customs duties in terms of notification 48/99 with obligation to export copper sheets worth Rs. 6.65 crores within 18 months from the date of issue of licence i.e. on or before 10.1.2003. However, much prior to the expiry of the licence period, the DRI had confiscated the consignment and seized the licence on 14.3.2002 thereby making it impossible for the second respondent to fulfill the condition of licence. He would further contend that the goods having been cleared on merit basis, there remains nothing to be adjudicated in this Appeal and the BG furnished has to be permitted to be encashed.
15. Before analyzing the questions of law framed for consideration in the above appeal it would be relevant to first consider the scope and purpose of notification No. 48/99 - Cus. Dated 29.4.1999. The notification is termed as Import Against Annual Advance Licence With Actual User Condition Exemption. The Central Government its exercise of its power conferred under Section 25(1) of the Act exempted material imported into India against an Annual Advance Licence with Actual User Condition in terms of para 7.4A of the Export and Import Policy from the whole of the duty of Customs levyable on the imported materials which has been specified in the first schedule of the Customs Tariff Act, 1975 and the whole of Additional Duty Levyable thereon under Section 3 of the Tariff Act, subject to conditions laid down in the notification. Condition No. i, v and viii would be relevant for the purpose of this appeal which are as hereunder:
i. that the materials imported are covered by an Actual User Duty Exemption Entitlement Certificate (hereinafter referred to as the said certificate), issued by the Licensing Authority in the form specified in the Schedule annexed to this notification, in respect of the value, quantity, description, quality and technical characteristics.
vi. that the export obligation is discharged within the period specified in the said certificate or within such extended period as may be granted by the Licensing Authority by exporting resultant products manufactured in India which are specified in Part E of the said certificate (hereinafter referred to as resultant products).
viii. exempt materials shall not be disposed of or utilized in any manner except for utilization in discharge of export obligation or for replenishment of such materials and the materials so replenished shall not be sold or transferred to any other person.
16. The importer shall also execute a declaration to the effect that the information furnished in the statement for obtaining the Licence is correct. A careful reading of the above referred notification establishes that the same is an Actual User Licence, were the Importer is bound to discharge the import obligation within the time prescribed. There is also a bar for disposal of the exempted materials except for the utilization in discharge of export obligation or for replenishment of such materials and the materials so replenished shall not be sold or transferred to any other person. In the schedule to the notification the person availing the exemption is required to furnish the name and address of the factory were the resultant products for export are to be manufactured and were the ancillaries to the resultant product are manufactured. The copy of a licence which has been filed in the typed set of papers, shows that the Importer is required to exports handicrafts with the materials which have been imported. The licence has been granted under the provisions of Foreign Trade (Development and Regulation) Act, 1992.
17. Thus it is seen the Importer has been granted the exemption of duty of Customs and the additional duty on the representation made, that the materials imported are to be wholly utilized for the purpose of manufacture of Handicrafts for export.
18. The allegations in the show cause notice dated 6.3.2002 issued to the 2nd Respondent is that they do not have a manufacturing unit for manufacture of resultant products out of the duty free imported raw materials, even though it was shown in part A of DEEC Book that they have a manufacturing unit at Basti Gajurala, JP Nagar, UP. That the licence was obtained by the 2nd Respondent by giving false information that they have a manufacturing unit. Further the 2nd Respondent had claimed that the goods meant for manufacture was sent to factories at Moradabad on job work basis and on enquiry the DRI found that the said premises also do not have manufacturing facility, but were getting it manufactured from other job workers of Moradabad. The two firms who are said to have received the raw materials from the 2nd Respondent, stated that they received the goods from three transporters of Delhi and the DRI on enquiry found that the three transporters were not in existence at the addresses given on the consignment notes. The show cause notice further states that even assuming the 2nd Respondent had sent the goods to job workers, they would still not be entitled to avail the benefit of the exemption notification since they ought to be a Manufacturer - Exporter, to be eligible for the exemption. In the show cause notice it was noted that the 2nd Respondent has not made any export in respect of the 445.162 m. tones of copper scrap imported duty free during the earlier period between September 2001 to November 2001. However the show cause notice was restricted in respect of 86.963 m. tones covered under 4 Bills of Entry, with a further rider that show cause notice for the past clearances will be issued separately.
19. It is seen from the reply dated 10.3.2003 given by the 2nd Respondent, that there is no denial regarding the allegation that they have no manufacturing facility. The 2nd Respondent stated that they had a valid licence and that before the expiry of the period of licence the same has been seized and the goods have been seized on the apprehension that they will not be utilized and that the same cannot be a ground for confiscation under Section 111(o) of the Customs Act. Thus it is safe to conclude that the declaration given by the 2nd Respondent that they are Manufacturer - Exporter for availing the Annual Advance Licence with Actual User Condition is a false declaration.
20. With this factual background, the point to be considered would be as to whether the 2nd Respondent would still be entitled to the benefit of exemption on the reasons assigned by the Tribunal.
21. The Tribunal held that the period of licence was upto 10.1.2003 and the licences were seized by the DRI on 14.3.2002 and therefore they could not fulfill the export obligation and the past conduct of the 2nd Respondent is not to be looked into and that the licence authority has not cancelled the licence and the License was valid and the benefit should be extended to the 2nd Respondent. The Tribunal placed reliance on the decision of the Hon'ble Supreme Court reported in : 2003(151)ELT254(SC) , Titan Medical System v. CC, New Delhi, and held that once an Advance Licence was issued and not cancelled by the Licencee Authority, the Customs Authority cannot refuse exemption on the allegation that there was misrepresentation. The Tribunal by placing reliance on a Judgment of the Mumbai Tribunal held that a licence obtained by fraud is voidable and is good till voided. The Tribunal placed reliance on the Judgment of Hon'ble Supreme Court in Union of India v. Sampath Raj Dugar : 1992(58)ELT163(SC) and held that if on the date of import the goods were covered by valid import licence then subsequent cancellation of the same is not relevant and does not render retrospectively the import illegal and to call for confiscation under Section 111(d) and 111(o) of the Act arises only when the condition is not observed within the period prescribed. The Tribunal accepted the alternate plea submitted by the Importer that the goods can be cleared on merit rate as the Item is freely importable under OGL and relied on an earlier order passed by the Commissioner of Customs Import and permitted the goods to be cleared by paying appropriate duty.
22. The Learned Counsel for the Respondent while strenuously supporting the order of the Tribunal would place reliance on the case of East India Commercial Co. reported in : 1983(13)ELT1342(SC) , wherein the Hon'ble Supreme Court held that the infringement of a condition in the import licence not to sell the import goods to third parties, is not an infringement of the order which itself does not impose such a condition and therefore the infringement does not attract Section 167(8) of the Sea Customs Act, 1878 if the goods have been validity imported. The Hon'ble Supreme Court also held that there is no legal basis for the contention that licence obtained by misrepresentation makes the licence non-est with the result that such goods should be deemed to have been imported without licence so as to attract Section 167(8) of the Sea Customs Act and it is only voidable but otherwise such a licence is good. The Learned Counsel for the Respondent also placed reliance on the Judgments of the High Court of Bombay reported in and : 1990(46)ELT527(Bom) wherein the Judgment of the Hon'ble Supreme Court in East India Commercial Company case has been followed. The Learned Counsel for the Respondent placed reliance on the Judgment of the Hon'ble Supreme Court in Union of India v. Sampath Raj Dugar reported in : 1992(58)ELT163(SC) were the Hon'ble Supreme Court held as follows.
21. the next question is whether the import of the said goods was contrary to law in any manner and whether the said goods are liable to be confiscated under the Customs Act. The only provisions relied upon by the appellants are Clauses (d) and (o) in Section 111 of the Customs Act which we have set out hereinabove. In our opinion none of these Clauses are attracted in the present case. Clause (d) contemplates an import which is contrary to any prohibition imposed either by the Customs Act or any other law for the time being in force. No such prohibition can be pleaded in this case since on the date of the import the said goods were covered by a valid import licence. The subsequent cancellation of licence is of no relevance nor does it retrospectively render the import illegal. East India Commercial Co. Ltd. v. The Collector of Customs, Calcutta : 1983(13)ELT1342(SC) . Clause (o) contemplates confiscation of goods which are exempted from duty subject to a condition, which condition is not observed by the importer. Occasion for taking action under this Clause arises only when the condition is not observed within the period prescribed, if any, or where the period is not so prescribed, within a reasonable period. It, therefore, cannot be said that the said goods were liable to be confiscated on the date of their import under Clause (o). Further, merely because the second respondent had not complied with the condition imposed with respect to three earlier consignments, it may not be possible to presume that it would not be observed even with respect to the four consignments in question. Be that as it may, it is sufficient for the present to notice that so far no action has been taken on that account either under the Customs Act or under Section 4G of the Imports and Exports (Control) Act, 1947, Section 4G of 1947 Act is also conceived to meet such a situation, as a reading thereof would disclose. It says that non compliance with any condition of licence relating to utilization of such goods renders the said goods liable to confiscation notwithstanding that five years has passed by, no action has been taken either under the Customs Act or under Section 4G of Imports and Exports (Control) Act, though the import licence of the second respondent has been cancelled. We must presume in the circumstances that no such action was or is contemplated. In these circumstances the title of the first respondent to the said goods remains free of any cloud.
23. The Learned Counsel for the Respondent placed reliance on the Division Bench Judgment of this Court in : 1993(68)ELT319(Mad) wherein it has been held:
11. now let us examine whether there is any merit in W.A. Nos. 353 and 354 of 1993 filed by the Department. Mr. C.A. Sundaram, learned Additional Central Government Standing Counsel appearing for the appellants in the said Writ appeals contended that the Learned Single Judge is not correct in permitting the clearance of the goods on the conditions stipulated in the order and that the Learned Single Judge on the facts and circumstances of the present case ought not to have ordered the release of the goods pending investigation. The Learned Counsel further contended that since the goods namely, Staple Pins were sought to be cleared without payment of duty relying on the exemption Notification 203/92, and the conditions to be satisfied for claiming exemption from payment of duty under Notification 203/92, have not been observed, the goods in question become liable for confiscation under Section 111(o) of the Act and therefore, such goods cannot be released to the Petitioner pending adjudication proceedings. The learned Counsel also contended that even assuming that the importer had not participated in the illegal acts with regard to the falsification of the licence, the confiscation being an action in rem, would render the goods liable for confiscation in whosesoever hands and therefore, the release of such goods to the importer cannot be permitted. In support of the said contention, the learned Counsel relied upon the decision in Collector of Customs, Madras and Ors. v. D. Boormull : 1975CriLJ545 . There is no substance in the above contentions of the Learned Counsel for the Department. Clause (o) of Section 111 of the Act contemplates confiscation of goods which are exempted from duty subject to a condition, which condition is not observed by the importer. Occasion for taking action under this Clause arises only when the condition is not observed within the period prescribed, if any, or where the period is not so prescribed, within a reasonable period. The question of petitioners not satisfying the conditions prescribed in Notification 203/92 for claiming exemption, from payment of duty in respect of Staple Pins imported into India against the Value Based Licence does not arise in this case, in view of our finding that in the present case, no valid Value Based Advance Licence with regard to Staple Pins was in existence at the time of import and therefore, the Petitioners cannot claim exemption from payment of duty. Further it cannot be said that in the present case, the goods in question are exempted from payment of duty subject to certain conditions and those conditions were not subsequently satisfied. This is a case where, the petitioners imported Staple Pins without a valid licence. Therefore, we have no hesitation in holding that the provision of Section 111(o) of the Act does not stand attracted to the facts of the present case, and that the goods in question are not liable to confiscation under Section 111 of the Act. Again, it must be pointed out that, under Export and Import Policy relating to the period from 1.4.1992 to 31.3.1997 imports can be done without any restrictions except to the extend such imports have been regulated by the negative list of imports and any other provision of the policy and any other law for the time being in force. Paragraph 10 of the Export and Import Policy says that negative list may consist of goods, the import or export of which is prohibited restricted through licensing otherwise, or canalize. Paragraph 12 of the said policy provides that any goods, the export or import of which is restricted through licensing, may be exported or imported only in accordance with a licence issued in this behalf. Admittedly, the goods in question does not figure either in the negative list or in the sensitive list of imports. For the goods in question there are no restrictions for import and they can be imported lawfully without licence but subject to payment of duty. In these circumstances, it has to be held that the goods in question are not liable to confiscation under Section 111 of the Act and to such a case, principles laid down in Collector of Customs, Madras and Ors. v. D. Bhoormull : 1975CriLJ545 will have no application. Therefore, we see no merit in Writ Appeals 353 and 354 of 1993 filed by the Department also.
24. The next decision relied on by the Learned Counsel for the Respondent is in the case of Titan Medical System Case which has been referred above. In the said decision the Hon'ble Supreme Court held that once an Advance Licence was issued and not questioned by the Licensing Authority the Customs Authority cannot refuse exemption on an allegation that there was misrepresentation. The Learned Counsel placed reliance upon a Division Bench Judgment of this Court in 2004 (177) ELT 57 (Madras) and is Lordship Mr. Justice V.S. Sirpurkar (As he then was), delivering the Judgment on behalf of the Division Bench, considered the Judgments of the Hon'ble Supreme Court in the cases of East India Commercial Company, Titan Medical System, Sampath Raj Dugar and the Judgment of the Hon'ble Supreme Court in : 1996(88)ELT626(SC) .
25. Mr. S. Udyakumar Learned Senior Standing Counsel for the Appellant, would contend that this was a case were there has been a deliberate misrepresentation by the importer and it is an undisputed fact that there is no manufacturing facility with the importer which would disentitle the importer for exemption. He would placed reliance on the Judgment of the Hon'ble Supreme Court in Union of India v. Mustafa and Najibai Trading Co. : 1998(101)ELT529(SC) wherein the Hon'ble Supreme Court held that the intention of the owner or master of the vessel has no bearing on the exercise of power of confiscation of goods under Section 111 of the Act because confiscation of goods is an action in rem directed against the goods in respect of which contravention rendering them liable to be confiscated as taken place. The Learned Standing Counsel also relied upon the Judgment Hon'ble Supreme Court 2007 12 (SCC) 391 wherein it was held that the definition of prohibited Goods is a broad one. The said provision not only brings within its sweep an import or export of goods which is subject to any prohibition under the said Act, but also any other law for the time being in force. Power to confiscate, this would arise under both the situations. The Hon'ble Supreme Court further held that although the decision in (2003) SCC 161 related to a matter concerning drawback scheme, but a decision of the Hon'ble Supreme Court interpreting a different Section by its cannot be brush aside only on the ground that the decision of the same Bench in (2007) 12 SCC 401 was applicable being related to the DEPB scheme and that the question has to be considered having regard to the provisions of the definition of prohibited goods, entry of goods together with the provisions of FERA.
26. At this stage it would be useful to refer to the decision of the Hon'ble Supreme Court in Sheshank Sea Foods Pvt. Ltd. v. UOI : 1996(88)ELT626(SC) , wherein the Hon'ble Supreme Court held that Section 111(o) of the Customs Act, provides for confiscation of exempted goods when condition of exemption is not observed. The relevant paragraphs is as follows:
9. Section 111(o) states that when goods are exempted from Customs Duty subject to a condition and the condition is not observed, the goods are liable to confiscation. The case of the Respondent is that the goods imported by the Appellants, which availed of the said exemption subject to the condition that they would not be sold, loaned, transferred are disposed of in any other manner, had been disposed of by the Appellants. The Customs Authorities, therefore, clearly had the power to take action under the provisions of Section 111(o).
10. We do not find in the provisions of Import and Export policy or the hand book of procedure issued by the Ministry of Commerce, Government of India, anything that even remotely suggests that the aforesaid power of the Customs Authorities had been taken away or abridged or that an investigation in to such alleged breach could be conducted only by the licensing authority. That the licensing authority is empowered [to] conduct such an investigation does not by itself preclude the Customs Authorities from doing so.
11. The communication of the Central Board of Excise and Customs, dated 13th May, 1969 refers to the breach of the condition of a licence and suggests that it may not be possible to take action under Section 111(o) in respect thereof. It is true that the terms of the said Exemption Notification were made part of the Appellants' licenses and, in that sense, a breach of the terms of the said Exemption Notification is also a breach of the terms of the license, entitling the licensing Authority to investigate. But the breach is not only of the terms of the licence; it is also a breach of the condition in the Exemption Notification upon which the Appellants obtained exemption from payment of customs duty and, therefore, the terms of Section 111(o) enable the Customs Authorities to investigate.
27. The Judgment of the Hon'ble Supreme Court in East India Commercial Co., case, as referred above, held that the provision of Section 167(8) of the Sea Customs Act can be involved only if an order issued under Section 3 of the Import & Exports (Control) Act, 1947 (XVIII of 1947) was infringed during the course of Import or Export. It was found that in the said case that no order which has been passed under Section 3 of Act XVIII of 1947 was infringed and that infringement of a condition in the licence not to sell the goods imported to third parties is not an infringement of the order under Act XVIII of 1947, and, therefore, the said infringement does not attract Section 167(8) of the Sea Customs Act. The facts of the present case is entirely different, and likewise the language of Section 111(o) of the Customs Act, 1962 is also couched in a different manner. Therefore we find that the Judgment in East India Commercial Case does not help the Respondent.
28. The Hon'ble Supreme Court in the case of Titan Medical Systems dealt with a case where the value which had been indicated was very large whereas what was actually spent was a paltry amount. Further the licensing authority in that case have not claimed that there was any misrepresentation. Therefore the decision in Titan Medical Systems case would not render support to the Respondent's contention. It is to be noted that in the instant case the charge against the Importer was one of misrepresentation which was found to be factually true by the Authority, and further the Licensing Authority namely JDGFT, New Delhi issued show cause notice dated 9.5.2002 for cancellation of the Licence which was challenged by the 2nd Respondent by filing Writ Petition which was subsequently withdrawn. At that stage of the matter the DRI had issued the show cause notice dated 6.3.2003, whch is subject mater of the present case.
29. Next, coming to decision of the Hon'ble Supreme Court in UOI v. Sampat Raj Dugar, relied on by the Respondent, it is to be seen that the issue which came up for consideration was regarding the ownership of the goods in question and the import of Section 111(o) of the Customs Act, and the further question as to effect of subsequent cancellation of license. Therefore we find that the decision of the Judgment of the Apex Court in Sampat Raj Dugar would not be applicable to the facts of the present case.
30. Now coming to the Judgment of the Division Bench of this Court in 2004 (177) ELT 57 (Mad.) we find the Judgment would apply to the facts of the present case in its entirety. In the said case the Writ Petitions were filed challenging the summons issued under Section 108 of the Customs Act. The Learned Single Judge of this Court dismissed the Writ Petition as against which the appeals were filed before the Division Bench. The Appellants placed reliance on the Judgment of the Hon'ble Supreme Court in the case of East India Commercial Company case, Sampat Raj Dugar and Titan Medical Systems (as referred above) and stated that the Customs Authorities had no jurisdiction to issue to notice under Section 108 of the Customs Act. The Division Bench of this Court after considering the law laid down by the Hon'ble Supreme Court in the case of Sheshank Sea Foods case held as follows.
23. Though there will be no question of the binding principle as laid down by the Supreme Court being watered down, in our opinion, the observations have been made in an entirely different context. There was no question regarding the power of the Customs authorities to initiate investigation or the enquiry, as the case may be. Again, this was not a case of manufacturing licence but pertained to the import of raw materials under the exemption notifications issued under the EXIM policy. The basis issue in the proposed enquiry by the Customs Authorities appears to be as to whether there at all was a manufacturing factory or manufacturing unit for utilizing the imported stainless steel sheets and if such manufacturing unit was not there, how the imported stainless steel sheets were actually utilized. It is also true that the further question in that enquiry is going to be as to whether it was the imported material alone which was used in the manufacturing activity. Now, if there was no manufacturing unit available or any such manufacturing unit as would have the capacity to manufacture the goods worth crores of rupees, how was the imported stainless steel utilized. The question would not only be misrepresentation while getting the Advance Licence but also about the utilization of the imported material, which would squarely fall under Section 111(o) of the Customs Act. In our opinion, the decision in Titan case, cited supra, also does not help the Appellants.
29. We do not think that such an approach would be a right approach to the problem. We have already clarified that even if the redemption of the licences is completed, still there would be a power in the Customs Authorities to effect the investigation, or, as the case may be, enquiries to see that whether there was any evasion of the Customs duty. Therefore, in our opinion, the discharge of the export obligation per se cannot put an end to the whole story.
30. Insofar, as the second notification, Notification No. 30/97, is concerned, a similar provision regarding the export obligation also appears there. However, there appears to be a specific Clause added., i.e. Clause (vii), which is to the following effect: '(vii) exempt materials shall not be disposed of or utilized in any manner except for utilization in discharge of export obligation nor for replenishment of such materials and the materials so replenished shall not be sold or transferred to any other person'. Learned Senior Counsel appearing on behalf of the Department very heavily relies on this Clause and says that it is in this direction that the enquiry has to be made. We agree with the Learned Senior Counsel that there can be a scope of enquire and the summons issued under Section 108 of the Customs Act for effecting the enquiry such as these cannot be bad for the lack of jurisdiction.
31. We are entirely in agreement with the law laid down by the Division Bench of this Court as stated above, which has followed the decision of the Hon'ble Supreme Court in the case of Sheshank Sea Foods and we are inclined to accept the contention of the Appellant Department. Admittedly in the present case the misrepresentation made by the importer has not been denied while submitting the explanation to the show cause notice and the importer took a technical stand that because the licenses were seized by the DRI prior to the period of expiry, it has disabled them from discharging the export obligation. Though the past conduct of the importer is not the subject matter of the show cause notice/adjudication in question, we cannot be asked to turn a blind eye to the allegations made in the show cause notice which remains unrebutted to the following effect.
(vii) M/s. Gaur Impex has not made any export so far even though they have already made imports of 445.162 mts., of Copper Scrap free of duty by availing benefit of Customs Notification No. 48/99 during the period from September, 2001 to November, 2001;
(viii) Since the Copper Scrap totally weighing 445.162 mts., imported duty free and already cleared against the license in question was not actually used by the importer for manufacture of resultant export products, it appears that they have diverted the said goods for the purpose other than for manufacture of resultant export products and thus violated the conditions of the aforesaid Customs Notification and DEEC Scheme (Annual Advance Licence). Hence the said 445.162 mts, of Copper Scrap appears to be liable for confiscation under Section 111(o) of Customs Act, 1962.
32. It is to be noted that in the reply dated 10.04.2003 the importer has not made any factual denial on the above allegations. Be that as it may, the Investigation Agencies are not precluded from initiating separate investigation in respect of the past imports and the present imports. Undoubtedly the past conduct of the importer would assume significance in the course of investigation. Even in service jurisprudence, the past service record or conduct of a delinquent could be looked into for the purpose of imposition of penalty, ofcourse after affording reasonable opportunity to the delinquent in this regard. Admittedly the Department has stated that show cause notice for the past clearance will be issued separately.
33. It is to be noted that the Division Bench of this Court in a case of South India Exports as referred above held that even the discharge of the export obligation per se cannot put an end to the whole matter. The facts in the present case is worse, in the sense that the importer made a false statement for the purpose of securing an advance license with Actual User Condition. The fact that the time within which he had to discharge his obligation has not come to an end, does not advance the case of the importer. The basis for his discharge of the export obligation is existence of a factory. The basis does not exist, the address given is a false address, so the whole edifice falls. The fact that the importer could affect his export obligation through job workers and the existence of a factory is not a sine quo non, does not advance his case either. The importer claimed he had a factory when he had none. So, whether he could have completed the manufacture otherwise hardly matters. For the purpose of obtaining such license with Actual User Condition, it is mandatory that the importer should be a Manufacturer - Exporter. The importer made a false declaration of being one. Having made such a false declaration and obtained a license, the importer cannot be permitted to now say that the imported material is freely importable under OGL and therefore should be allowed to be clear on merit rate. The Tribunal fell in error in permitting the clearance of the goods on merit rate. By doing so the Tribunal has virtually set at naught the purpose behind issuance of an exemption notification. If the Respondent is not an actual user he would not be entitled to utilize the license. The license having been secured by adopting fraudulent method would not confer any right on the importer and as such he cannot be allowed to plead any equity. Therefore we find that the order passed by the Tribunal is not sustainable and liable to be set aside.
34. In the result the questions which have been framed in the above appeal are answered in favour of the Revenue. It is has been represented that the goods have been cleared on payment of duty at merit rate and in respect of the Bank Guarantee furnished 50% has been released pursuant to interim orders of this Court and that the Department is retaining Bank Guarantee to the tune of Rs. 15,00,000/-. In view of the order passed by us in this Appeal, the Department shall be entitled to appropriate the said sum of Rs. 15,00,000/- towards the duty and penalty demanded and initiate appropriate proceedings for recovery of the balance amount from the 2nd Respondent in accordance with law.